Thursday, April 29, 2010

QuickBooks: Handling Drop Shipments

Drop shipping is when you do not stock the item being sold and you tell someone else to ship it (using your address) so it appears to come from you. So, basically what you order is your cost of goods sold, and there is normally no reason to keep an inventory list.

Drop shipping, however, can have two conditions:

1. The first condition is when you get the order and full payment, then you order the item and pay your cost.

To handle this:
* Create a service income item for sales
* Use that on the sales receipt to record income
* In the description block, enter what was sold.
* Then order the items from the supplier
* Use a generic non-inventory item
* This item should have COGS as the expense account.
* This will give you a payable that is your cost.


2. The second condition is when the order goes to the shipper and the shipper gets paid. You get a check for your share of the purchase.

For this method:
* Create an Other Charge item, call it Sale-Cost
* Select the COGS account as the expense account.
* Create a service income item for sales
* Use that on the sales receipt to record the income.
* In the description block, enter what was sold.
* Then put the Other Charge item on the next line
* Enter -1 or higher if you had more than one ordered
* Enter the cost.

That sends the cost to COGS, and the sale to sales income, the amount on the sales receipt will reflect the check you received and that amount will go to undeposited funds.

The drawback to doing it this way is a lack of detail on what is selling and what is not, but I would expect that periodically the drop shipper will send you a recap of your activity showing what was sold.